FHA Purchase: After 90 Days But Before 180 Days
Posted by Kevin Kueneke | Leave A Comment »
We have discussed FHA’s 90-day “anti-flip” policy a lot these days. Basically, a buyer will be unable to obtain FHA insured financing if the subject property has been owned by the seller for less than 90 days, with some exceptions.
But did you know that FHA is still concerned from day 91 to day 180? If the new purchase price is 100% or more than the price paid by the seller and the seller purchased the property within the past 91 to 180 days, the lender will be required to obtain a second appraisal by another appraiser.
Even though this rule has been in effect since June of 2006, it has only recently been an issue due to all of the properties purchased on the court house steps.
Even if the seller can provide documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value, a second appraisal will still be required. Also, the cost of the second appraisal may not be charged to the home buyer.
Bottom line: check the transaction/price history. A second appraisal could add additional time to your escrow, unless you plan accordingly.
Should you have questions regarding this article or any other mortgage related topic, please call me at (760) 500-1919 or email me: Kevin@MyCWMtg.com
Related Posts: Buyers, CW Mortgage, Home Loans, Homeowners, Mortgage News
Getting a Loan Could Soon Prove More Difficult
Posted by Rachel LaMar, J.D. | Leave A Comment »
The FHA is looking into making some changes in how they approve insurance policies on home loans, and this may make it harder for borrowers to obtain loans in the future. If you are looking to purchase there is no time like the present.
There are four main components to the proposed changes, including raising minimum down payments and limiting seller contributions to buyer closing costs. To read more please visit http://www.rachellamarrealestate.com/blog/?p=216.
Related Posts: Buyers, Home Loans, Mortgage News, rachel lamar
FHA Loans – Down Payment, Reserves and Mortgage Insurance
Posted by Paul Gonzales | Currently 1 Comment »
This is the fourth and final post in a series that deals with important aspects of FHA financing.
- The first post provided an overview of the program.
- The second post detailed FHA credit requirements
- The third post discussed the income and employment requirements.
- This post will discuss the down payment and asset requirements necessary to obtain an FHA home loan.
Minimum Down Payment
In today’s challenging market, this is probably the most attractive feature of the FHA home loan – the minimal down payment requirement. For years the minimum requirement has been 3% of the purchase price. Effective January 1, 2009 this will increase to 3.5%, still a great deal especially for first-time homebuyers. This benefit is enhanced further by the flexibility allowed for the source of those down payment funds, as discussed below:
Reserve Requirements
Reserves are funds that a buyer has “left over” after purchasing the home. Most conventional home loans require enough reserve funds to cover at least two months of mortgage payments including property taxes, insurance, mortgage insurance and home owner’s association (HOA) dues if required.
FHA financing does not have a reserve requirement if purchasing a 1 or 2 family property (a 3 or 4 family property requires at least three months of reserve funds).
Acceptable Sources of Funds
- Borrower’s depository funds – Funds owned by the Borrower in bank accounts, stocks and bonds, Certificates of deposit, retirement accounts such as 401k plans
- Gift funds – Can come from a wide variety of sources, including family members, a close friend with established close ties to the borrower, an employer or labor union, charitable or non-profit organization, government agency or a public entity such as a city through a homebuyer’s assistance program. A couple important caveats: the gift funds must be thoroughly documented and provide a clear paper trail. Depending upon the source of the gift funds, such documentation will include a detailed “gift letter”, copies of cancelled checks and bank withdrawal slips or evidence of bank wire transfer. There must be reasonable evidence that the qualified donor has the financial ability to give the gift. As of October 1st, 2008, funds from certain non-profit organizations which are matched by donations from the home seller can no longer be gifted to the buyer
- Sale of existing home – proceeds from the sale of an existing home may be used to purchase a new home with FHA financing
- Sale of personal property – the sale of a car or other personal property is acceptable as long as the funds can be paper trailed to the sale
- Cash or “mattress money” – this requires a written explanation describing the source of the cash, how it was accumulated and how long it took to accumulate. Such cash accumulation must make sense for the borrower, such as not having a checking or savings account or credit accounts.
- Commission from sale of property – acceptable if the borrower/buyer is a licensed real estate agent and entitled to a commission from the sale
Mortgage Insurance
A lesser appreciated, but very vital benefit of FHA financing, has to do with mortgage insurance, or MI. Until recently, it was generally easy to avoid having to pay for mortgage insurance when purchasing a home with less than 20% down payment. This was accomplished by getting a second mortgage to “piggy back” with an 80% first mortgage. Thus a qualified buyer could buy a home with little or no money down by obtaining two mortgages. In the reality of today’s markets such second mortgages are all but non-existant or exorbitantly priced.
The only remaining option for a homebuyer with less than 20% for a down payment is to pay for mortgage insurance. In certain areas such as California, most companies that provide such insurance have limited the maximum coverage to 90% (or less) of the purchase price. In addition, they have tightened their underwriting guidelines and it is indeed more difficult to actually qualify for the insurance.
Enter the FHA home loan. It is generally considered easier to qualify for MI under the FHA and it will go to 96.5% of the purchase price. In short there is a significant portion of the home-buying population who have no other option than FHA financing just for these two reasons alone.
In a Nutshell…
FHA financing may not necessarily be the best fit for everyone in the home-buying market. However, these hallmark features of the FHA home loan – minimal down payment and reserve requirements, flexible sources of funds and availability of mortgage insurance – are far and away the primary reasons that many home buyers, particularly younger first-time home buyers, seek FHA financing. It’s clear to see why.
Special Note: Pursuant to recent legislation addressing current housing issues, various departments of the Federal government are working on implementing new programs and expanding the role of the Federal Housing Administration (FHA) in dealing with these issues. As these programs are actually implemented and become available to consumers, look to PicturePefectSanDiego.com for new posts describing them in detail.
Read more articles and valuable tips about financing by Paul Gonzales
You can contact Paul at (800) 775-7334 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Homeowners, Interest Rates, Mortgage News
FHA Loans – Income and Employment Requirements
Posted by Paul Gonzales | Currently 2 Comments »
This is the third in a series of six posts that deal with important aspects of FHA financing. The first post provided an overview of the program while the second post detailed FHA credit requirements. This post will discuss the income and employment requirements necessary to obtain an FHA home loan.
Income Documentation
For employees this is quite straightforward. Copies of the most recent paystubs covering at least one month and W2s for the previous two years are required. Complete Federal income tax returns for the previous two years may be required as well.
For self-employed people, signed copies of personal tax returns for the previous two years are required. If the business is a legal entity such as an “S” or “C” corporation, partnership or other legal entity then two years of business tax returns are also required. A signed year-to-date Profit and Loss statement (P&L) will be needed to complete the income documentation. FHA guidelines state that 25% or more ownership in a business is considered self-employment.
Types of Income for Employed People
The lender will review the paystubs together with the W2s and tax returns to establish a baseline amount of income as well as stability of the income. In general, if base income is increasing they will likely be able to use the current income amounts. On the other hand, income that is declining over the past two years will result in an averaging of the income. A significant decline in base income will require a written explanation.
- Overtime – to be counted it must have been relatively constant for the past two years as well as currently. There must be the prospect that it will continue and the employer will be required to state that it is likely to do so on a written Verification of Employment. If used it will be averaged over time and added to the base income
- Bonuses – the rules are similar to considering overtime.
- Commissions – will be averaged over the prior two years and must demonstrate reasonable stability; tax returns will be reviewed and unreimbursed business expenses will be deducted from the income
- Child support, alimony and spousal maintenance – such income can be included provided that it can be shown to continue for at least the next three years. It must be documented by a divorce decree, court order or separation agreement and actual receipt of the income documented by cancelled checks, bank statements or other positive means.
- Retirement income – Pension and Social Security income is acceptable and must be documented by award letters, IRS form 1099s and current “pay advices” (stubs). Again, there must be the prospect of continuing for at least the next three years
- Insurance and government income – workman’s compensation, long-term disability or other similar income must be documented and expected to continue for at least three years
Self-Employed Income
Income and expenses will be analyzed from the past two years tax returns and current P&L. The earnings will be averaged over this time period. Income that appears stable or increasing will be considered, whereas declining earnings may not be considered acceptable.
Minimum Length of Employment
Stable employment in the same general field of work or business for two or more years is considered minimum. Going from being an employee to self-employed, even in the same line of work, gets special scrutiny. A person who has been self-employed for at least one year AND has at least two previous years of employed experience in the same field may be considered. Formal training or education in the same line of work during the prior two years may be considered in lieu of employed experience.
The next post in this series will discuss the financial assets and down payment requirements for obtaining FHA financing.
you can contact Paul Gonzales at (800) 775-7334 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Interest Rates, Mortgage News
FHA Loans – Credit Requirements
Posted by Paul Gonzales | Currently 3 Comments »
This is the second in a series of six posts that deal with important aspects of FHA financing. The first post provided an overview of the program. This post will detail the credit requirements necessary to obtain an FHA home loan.
Traditional Credit History
This describes the typical credit history that most people tend to establish over time. As consumers utilize credit in its many forms (credit cards, car loans, student loans, mortgages etc.) detailed histories of how they have managed their credit responsibilities are collected by at least three credit bureaus. In addition, each bureau also computes a composite credit score commonly known as your FICO score (stands for Fair Isaac Corporation, the company that created the current credit-scoring models).
The FHA lender will review the FICO scores as well as the details of the individual’s credit history to determine how well a Borrower has managed credit in the past. NOTE: You may obtain a free credit report once each year, from each of the three major bureaus (Equifax, Experian and Transunion) by going to www.annualcreditreport.com. There are many websites where you can obtain your FICO scores, usually for a fee. One popular site is www.myfico.com.
Derogatory Credit
You knew we would get there eventually. Derogatory, or negative, credit are the dents and dings that people can incur in their financial lives. Here is a breakdown of how FHA lenders consider such items:
- all derogatory items within the last 24 months require a written and signed letter of explanation
- “minor” derogatory remarks older that 24 months do not require explanation
- all “major” derogs require written explanation, regardless of age (the FHA lender determines what is minor vs. major)
- collections are considered major derogs and must be explained; most FHA lenders will require them to be paid off
- judgments must likewise be paid off unless a verifiable repayment plan is in force and all payments have been made to-date
- a foreclosure must be at least 3 years old, but may be less than that for certain documented extenuating circumstances beyond the Borrower’s control (I.e. serious illness, death of a wage-earner). Divorce will not normally be considered.
- Chapter 7 bankruptcy discharge must be at least 2 years old with no new derogatory credit issues after the discharge; may be less than 2 years with acceptable extenuating circumstances. Less than 12 months not allowed
- Chapter 13 and/or Consumer Credit Counseling allowed with at least a 12-month history of on-time payments; permission of the bankruptcy court or counseling agency is required
Non-Traditional or Alternative Credit
The FHA allows for Borrowers without traditional credit histories to document their bill-paying behavior by showing on-time payment of other types of consumer bills such as rents, utility bills and car insurance. Such documentation cannot be used to enhance an existing traditional credit report or offset other derogatory credit
A Final Word On Credit
As you can see, the FHA has certain minimum standards and requirements, yet also allows FHA-approved lenders a certain degree of discretion in some areas. It is up to the lender’s underwriter to render a final decision on the creditworthiness of a particular Borrower. Some lenders may add additional requirements as well, but can never ignore or toss out FHA guidelines.
Click here to go to the FHA’s consumer website.
The next post in this series will discuss income and employment requirements for obtaining FHA financing.
you can contact Paul Gonzales at (800) 775-7334 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Interest Rates, Mortgage News
